Finance has announced a one-year extension to its previously proposed temporary relief measures for employers who sponsor deferred salary leave plans (DSLPs) or registered pension plans (RPPs) for their employees. This temporary relief, previously announced in July 2020, is intended to help employers manage and maintain their employee benefit obligations throughout the COVID-19 pandemic and to allow employees who participate in DSLPs to suspend or defer their scheduled leave for a limited time without putting their plan at risk. Finance's extended relief also allows retroactive contributions to an employee's money purchase account for required contributions that were not made in 2020 and 2021, among other changes. Finance released revised draft regulations to reflect a one-year extension for these proposed measures on May 20, 2021.
This extended relief would introduce temporary stop-the-clock measures, for the period of March 15, 2020 to April 30, 2022 (instead of April 30, 2021), so that an employee's DSLP does not need to be terminated if the employee suspends a leave of absence to return to work or the employee chooses to delay their paid leave of absence.
Ordinarily, for an employee to enjoy the tax deferral benefits available under a DSLP, their deferral period under the plan cannot be longer than six years and the employee's leave of absence must generally be a continuous period of at least six months. If an employee's DSLP ceases to meet these criteria, the employer is required to terminate the plan and pay all deferred salary to the employee. The employee is also required to include these payments in their income.
The revised proposed draft regulations include the following extended relief:
- Two leave periods will be considered one consecutive leave of absence if an employee on leave returns to work on or after March 15, 2020 and resumes their leave of absence on or before April 30, 2022 (instead of on or before April 30, 2021)
- If the leave of absence resumed in 2020, the deferred salary must be fully paid by the end of 2021
- If the leave of absence resumes at any time in 2021 (no longer required to be on or before April 30, 2021), the deferred salary must be fully paid by the end of 2022
- If the leave of absence resumes in 2022 (but no later than April 30) the deferred salary must be paid by the end of 2023
- An employee may postpone the start of their leave of absence by up to two years (extended from up to 14 months) if the employee has not yet started a leave of absence and their deferral period would first exceed six years between March 15, 2020 and April 30, 2022 (extended from April 30, 2021).
Relaxation of borrowing restrictions
This revised relief will temporarily allow RPPs to enter into a loan or a series of loans after April 2020 and before February 2022, as long as the loan or series is repaid no later than April 30, 2022 (extended from April 30, 2021).
Except for limited circumstances, an RPP is generally prohibited from borrowing unless such borrowing is:
- Limited to a maximum term of 90 days
- Not part of a series of loans or repayments, and
- Not secured by property of the RPP.
This relief effectively extends the maximum 90-day term of allowable borrowings temporarily but does not change the restriction on RPP property being used as security.
Catch-up money purchase contributions in respect of 2020 and 2021
Finance has extended its proposed relief to permit retroactive contributions to an employee's money purchase account to replace required contributions that were not made in 2021 (as well as 2020). The employee or employer would generally need to make these retroactive contributions after 2020 and on or before April 30 2022 (extended from on or before April 30, 2021). Alternatively, an individual would have to commit in writing, on or before April 30, 2022, to the plan administrator or to the participating employer of the plan, to make the retroactive contribution (extended from on or before April 30, 2021). An employer's contribution that is conditional on the individual making that committed contribution would also be allowed. Where the above conditions are met, the retroactive contributions would be added to the employee's pension adjustment for the year in which the contribution would have otherwise been made, to ensure retroactive contributions plus regular contributions in 2021 or 2022 do not exceed the maximum contribution limit (the pension adjustment limit) for 2021 or 2022.
Pension coverage during periods of reduced pay
This proposed relief broadens the definition of "eligible period of reduced pay" to allow RPPs to recognize full pensionable service for more employees experiencing a period of reduced work and pay during COVID-19 for both 2020 and 2021. Previously, this relief was proposed to only apply for 2020.
As a result, the revised proposed draft regulations include the following relief for 2020 and 2021:
- Allow employers to provide unreduced pension coverage to all employees (including newer employees) by temporarily removing the requirement that employees must be employed for at least 36 months to qualify for an "eligible period of reduced pay"
- Remove the requirement that a reduction in pay must be generally commensurate with a reduction in work hours.
For example, if an employee works full-time for a period in 2021 during which wages are reduced by 20%, the proposed relief would permit the employer to provide pension coverage based on 100% of the wages that existed before the reduction.
For more information, contact your KPMG advisor.
Information is current to May 24, 2021. The information contained in this publication is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavour to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act upon such information without appropriate professional advice after a thorough examination of the particular situation. For more information, contact KPMG's National Tax Centre at 416.777.8500.